Will HMRC kill off the hobby breeder?
Most people who breed the occasional litter of puppies have, at some point, kept records of their expenditure in connection with that litter, but may well have given up the exercise because the figures are too frightening to contemplate. As ethical breeders we feel that we have so many expenses to consider – health testing, stud fees, special food for bitch and puppies, Kennel Club registration, microchipping, vaccinations and other vet bills, even show entries – the list is endless. Thus we are fond of stating that nobody who does the job ‘properly’ can ever make a profit out of a litter.
Of course, that patently isn’t true. While the pet owner who has a one-off litter from their bitch may not follow the same careful procedures that we do – often they ignore such expenses as health testing and may well use the dog down the road on the promise of a puppy instead of a stud fee – and consequently see that litter as a nice little earner that pays for the holiday abroad or the new kitchen, even those who do follow correct procedures can, when they have a decent sized litter, make a sizeable profit. Of course, they will justify it by pointing out that this isn’t profit, it just offsets the costs of our hobby, enabling them to enter more shows or buy a new car to replace the present one that has done so much mileage in pursuit of show ring success.
But where do we draw the line? All hobbies incur expense, so just how much can we legitimately offset against the income from a litter? This is a question that many suddenly find themselves having to answer as HMRC has recently started focussing on dog breeding as a source of taxable income. Over a year ago an information notice was served on one of the major pet insurance companies, requiring them to provide information on dog breeders who registered litters with them. Over 18,000 names were passed on, covering a four-year period, and now more than a few who considered themselves to be hobby breeders have received an uncomfortable visit from the authorities. Let’s be clear about this. If you sell just one puppy you receive an income – and all income should be declared to HMRC. Whether you have an obligation to actually pay any tax on your dog breeding activities is a completely different thing, and the chances are that with the occasional litter you won’t have to do so. However, prices of puppies have risen dramatically over the last few years, and there is no doubt that many who have previously regarded themselves to be outside any tax liability should now be paying tax on their puppy sales.
It is a grey area. When does what started out purely as a hobby become a business activity? Certainly it would be logical to assume that anyone who has enough litters to need a breeders’ licence is running a business and should therefore file an income tax return covering their activities. If they do so there are a whole raft of expenses they can legitimately offset against their income from puppy sales – expenses that would not be acceptable to the authorities if breeding were regarded simply as a hobby. With puppy prices approaching or even exceeding £1,000 in many breeds just breeding a couple of litters each year could easily put many people above the tax threshold.
A fiscal duty
Most of us have to work in order to pay for our dogs and the activities we undertake with them. For many that means having a full-time job and juggling quality time spent with the dogs around the hours spent at work. Others, like myself, are lucky enough to be able to work from home, which does ensure that the dogs have company and that the necessity to earn an income can be managed with a certain degree of flexibility. Others pay for their dogs by breeding litters of puppies and selling any that are surplus to their own requirements. There is absolutely nothing wrong with that. In fact it could be argued that these will be the best-reared, most socialised puppies and make ideal pets, because the breeder can devote all their time to the litter, instead of having to fit their care alongside work commitments. But, let’s be clear. If I don’t write my regular column I don’t have the money to buy dog food or enter shows. Similarly others may say that if they don’t breed a litter they can’t afford to feed their dogs or pay show entries. The difference is that I have to pay tax on my income before I can pay for my hobby, while many of those who breed and show see no necessity to contribute their share of tax. How can that be right? An income is an income however it is derived and we all have a duty to contribute our share to pay for the running of the country.
Then, just as those who breed a few litters a year, but don’t consider themselves to be in the ‘business’ of dog breeding, are preparing to justify their activities to HMRC, there is another indication of how restrictive things may become in future. An update on the DEFRA website on April 26 stated that, “you must have a dog breeding licence if you breed and sell dogs”. Although that is a proposal that has been put forward, it isn’t the law at present, even if some local authorities are already trying to enforce it. All credit has to go to the KC public affairs department who, once they were made aware of the statement, were in touch with DEFRA to point out the error and hopefully by the time you are reading this that wording will have been changed. However, despite the fact that the law actually states that you need a dog breeding licence only if you are breeding five or more litters yearly in England, Scotland and Northern Ireland and three or more litters in Wales or if you are breeding for commercial purposes, there are many local authorities that are already imposing stricter criteria, and many who would like to see licensing compulsory for all those who breed dogs.
So where does this leave the hobby breeder? It could be argued that anyone who sells just one puppy is already breeding ‘for commercial purposes’ and therefore does need a licence – and should be declaring that sale for tax purposes. One thing is certain. Those who, at present, breed an occasional litter in order to keep a puppy to show and to eventually carry on a line that may have been nurtured and developed over many generations, are likely to think twice before doing so in future. Will it really be worth the bother of applying for a licence in order to sell perhaps two or three puppies? Those who at present breed three or four litters a year, selling healthy pet puppies may consider that having to account for their activities to the tax authorities just isn’t worth the bother and give up – leaving the way open for the puppy farmers to fill the gap.